Gold Back in Favour

Highlights

• Physical gold ETPs inflows hit 9-month highs.
• Long WTI oil ETPs see eighth consecutive week of inflows, totalling US$10.8mn.
• Silver ETPs experience third consecutive week of inflows.
• ETFS Copper (COPA) received highest inflows since August.
• Profit-taking prompts withdrawals of US$6.6mn in ETFS Leveraged Natural Gas (LNGA)
• ETFS Soybeans (SOYB) sees largest outflow since April 2013 as El Niño probability increases.

Gold inflows rose to their highest since February 2013 last week following a 2.4% gain in price. With gold having fallen close to its marginal cost of production (which we estimate at US$1100/oz), investors increasingly believe that mine production will be cut in 2015, helping to tighten supply. At the end of this week the Swiss population will vote on whether to require their central bank to hold 20% of its assets in gold. While opinion polls only show 38% of the population is in favour of the proposal, there is a risk there will be more support on the day. If the proposal does pass, we would expect a sharp rally in gold.

Physical gold ETPs inflows hit 9-month highs. Inflows into physical gold ETPs reached the highest level since early February, totalling US$131.8mn last week, on a combination of bargain hunting and potential for a ‘yes’ result at the Swiss gold referendum. We believe that the Swiss referendum could act as a catalyst for further interest in the metal as the risk of a sharp rally increases.

Long WTI oil ETPs see eighth consecutive week of inflows, totalling US$10.8mn. The OPEC meeting this week will be a pivotal moment in regaining control in a cartel that appears to have lost its way. Discount oil selling by Saudi Arabia, Iran and Iraq in Asia and the US cannot persist if the cartel is to maintain credibility and we don’t believe the institution that has survived since 1960 will choose to become irrelevant right now. We believe Saudi Arabia will have to cut production in order to soothe the increasing restlessness of the other OPEC members. We remain believe both WTI and Brent benchmarks will increase as supply tightens in 2015.

Silver ETPs experience third consecutive week of inflows. Although silver rallied alongside gold last week, the gold to silver ration still remains at its highest since 2009, indicating that silver remains considerably cheap relative to gold. Continued global growth in 2015 should bode well for industrial silver demand, with Chinese photovoltaic consumption expected to be an area of strong growth in coming years.

ETFS Copper (COPA) received highest inflows since August. Although the copper price has fallen 8.7% year to date, optimism for the metal is growing. Supply surplus forecasts are slowing transforming to supply deficits and demand for industrial metals in general is likely to gain traction as China’s stimulus policy starts to have its desired effect.

Profit-taking prompts withdrawals of US$6.6mn in ETFS Leveraged Natural Gas (LNGA). The Henry Hub natural gas price surged 12.9% last week as colder weather hit the east coast of the US. The cold snap is likely to eat into storage levels earlier in the season than initially expected. Nevertheless, the US meteorologists believe that the winter will be relatively mild allowing for a rebuild in inventory levels after the cold snap.

ETFS Soybeans (SOYB) sees largest outflow since April 2013 as El Niño probability increases. Last week, the Australian Bureau of Meteorology increased the odds of an El Niño event this winter to 70% from 50% previously. An El Niño typically improves soy growing conditions in Brazil and Argentina and will be price negative should it materialise. Investors withdrew US$7.9mn flow from SOYB.

Key events to watch this week. Preliminary Q3 GDP data scheduled to be release for the US, the UK and Canada next week, likely highlighting the buoyancy of these three countries compared to other major economies like the Eurozone and Japan. CPI data for the latter countries will give clarity on the need for further stimulus in 2015 from the ECB and BOJ

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.